We are a Debt Relief Agency. We help people file for bankruptcy relief under the Bankruptcy Code.
Copyright © Joseph A. Ross - All Rights Reserved - Subject to Terms and Conditions
Serving: Bedford, Bloomfield, Bloomington, Brownstown, Columbus, Ellettsville, Greensburg, Franklin, Martinsville, Mitchell, Nashville, Paoli, Salem,
Seymour, Shoals, Spencer, Bartholomew County, Brown County, Daviess County, Dubois County, Greene County, Jackson County, Johnson County,
Lawrence County, Martin County, Monroe County, Morgan County, Orange County, Owen County and the surrounding areas
Advertising Material
“Helping honest people get a fresh start.”
FREQUENTLY ASKED
QUESTIONS
Page 1 of 2
1. What types of bankruptcy are available?
There are six chapters of bankruptcy: Chapters 7,
9, 11, 12, 13, and 15. Taking these out of order, Chapter
9 is for municipalities only, Chapter 11 is a business
reorganization chapter typically only filed by sizeable
companies, Chapter 12 is a reorganization chapter only
for farmers and fishermen, and Chapter 15 is for cross-
border cases (such as when the creditors of the person
filing bankruptcy are in another country). Therefore,
most people who file bankruptcy file either Chapter 7,
more commonly known as “liquidation” or “total
bankruptcy”, or Chapter 13, more commonly known as
“reorganization” or a “wage earner plan,” and those are
the two chapters on which this website focuses.
2. What is the difference between Chapter 7 and
Chapter 13?
There are several differences between Chapter 7
and Chapter 13, and a more thorough discussion can be
found on the “Chapter 7 vs. Chapter 13” page, but
basically Chapter 7 is a relatively quick process in which
one discharges his or her debts that are permitted to be
discharged in bankruptcy, whereas one who files a
Chapter 13 makes payments to a Chapter 13 bankruptcy
trustee for 36 to 60 months and pays back a portion of
what he or she owes, depending on what he or she can
afford to repay, and the portion of the debt that is not
paid back is usually discharged.
Based on this simplistic explanation, it sounds as if
everyone would want to file a Chapter 7 rather than a
Chapter 13. However, this is not necessarily the
case since Chapter 13 has several complex advantages
over Chapter 7. For example, Chapter 13 will usually
allow one to stop the foreclosure on a home or
the repossession of a car, whereas a Chapter 7 will often
only delay the foreclosure or repossession.
Some books on the various chapters and their
differences can be found here.
One should always consult with an attorney in
order to determine which chapter best suits their
specific situation.
3. Do I lose all of my property if I file?
No. You can keep property as long as it is exempt,
and as long as, if it has a lien on it that does not go away
in bankruptcy, you pay the lien off in one of several
different ways
Regarding property being exempt:
In both a Chapter 7 case and a Chapter 13 case,
persons who file bankruptcy may keep all of their
property which is “exempt.”
Bankruptcy law is federal law, but the federal
government decided to let the individual States decide
how much property a person filing bankruptcy in that
State may retain. States may use the federal exemptions
found in 11 U.S.C. § 522, or they may "opt out" of the
federal exemptions and use their own, or they may elect
to make their own exemptions and also make the federal
exemptions available to their residents.
So, each State determines how much property
(including real estate, such as your home, and personal
property, such as your car) a person may retain if they
file bankruptcy in that State, and property one gets to
keep is called the “exempt” property.
Property with a value lower than the exemption
dollar amount determined by the State is deemed
“exempt” and may be retained by the person filing
bankruptcy. Property that is worth more than the
exemption amount may be sold by the bankruptcy
trustee to pay creditors, or cause the person in
bankruptcy to have to pay the trustee the negotiated
value of those assets either directly in Chapter 7 or
through a Chapter 13 Plan to keep them.
Therefore, the amount of property a person may
keep in a bankruptcy normally depends on the State in
which the bankruptcy is filed. If a person has not lived in
a State for at least 2 years, he or she may be required to
use the exemptions from the prior State of residence or,
in some cases, the federal exemptions - see your
attorney for details.
Indiana has opted out of the federal exemptions
and has developed its own exemptions (see Indiana
Code § 34-55-10-1 in which Indiana declared its intent to
develop its own exemptions and not allow the use of
federal exemptions).
In Indiana, there are several exemptions that apply
to several different types of property, and they are found
in several different sections of the Indiana Code. There
are also some federal exemptions to which everyone is
entitled, even in States that opted out of the federal
exemption plan. So, an exhaustive discussion is not
practical here, but two of the most common exemptions
used in Indiana include the one relating to personal
property (such as cars, furniture, clothing, etc.) and the
exemption relating to the residence of the person filing
bankruptcy and/or his or her dependents (see Indiana
Code § 34-55-10-2(c) but note that the amounts listed in
that code section are inaccurate since those amounts
are periodically updated by 750 IAC 1-1-1). Basically,
persons filing bankruptcy in Indiana may retain up to
$10,250 personal property and $19,250 equity in their
residence. These exemptions may be invoked by each
person filing bankruptcy, so a married couple filing a
joint bankruptcy may retain up to $20,500 personal
property combined and up to $38,500 of equity in their
residence combined. Another common exemption is the
cash exemption, which is $400.00 per person.
If one owns personal property or has equity in real
estate above these exemption amounts, the bankruptcy
court may sell the property and give the sale proceeds
above the exemption amounts to the creditors. Property
being sold is more common in a Chapter 7 than a
Chapter 13, since in a Chapter 13 there are some
avenues to keep property even though it is significantly
above one’s exemption amounts. Therefore, persons in
a Chapter 7 only lose property if it’s worth more than
their exemption amounts allow them to retain,
and persons in a Chapter 13 seldom ever lose any
property even if they are over their exemption amounts
so long as they structure their Chapter 13 Plan
appropriately. Persons in Chapter 7 can also sometimes
retain unexempt property if they can pay the trustee a
negotiated amount to let them keep the unexempt
property (for example: the debtor, through their
attorney, says to the bankruptcy trustee: "I understand
you want to sell my $20,000 car because I can only
protect up to $10,250 worth of personal property;
However, after protecting my household goods, clothes,
etc., I had $6,200 of my $10,250 exemption left, all
of which I applied to the $20,000 car, leaving only
$13,800 of it unexempt. Also, if you sell it, it will cost you
money to hire a tow truck, store it until the sale,
insure it until the sale, hire an auctioneer, transfer the
title, etc., which I project will cost you $2,000. Therefore,
I will pay you $11,800 in cash if you let me keep the car,
since that is the amount I project you would net to give
to creditors if you sold it."). This is a unique negotiation
in each case, and of course never takes place if the
debtor can’t come up with the money to pay the
negotiated settlement to the trustee. In Chapter 13, this
same concept is employed to keep un-exempt property,
by paying enough money into the Chapter 13 Plan so
that creditors get the amount they would have gotten
had the un-exempt property been sold (and this is
sometimes called the Best Interest of Creditors test),
except in Chapter 13 the debtor has 4 to 5 years to pay
the amount, whereas in Chapter 7 the debtor has to
come up with the funds much more quickly.
One should discuss the exemptions pertinent to
their case with an attorney prior to filing a bankruptcy
petition.
Regarding property with liens:
If a person filing bankruptcy has a lien on a piece
of property (such as a mortgage on a house or a loan on
a car) the lien must either (1) continue to be paid
normally, (2) continue to be paid through a Chapter 13
Plan, or (3) the lien must be removed (called “avoided”)
through the bankrutpcy process, in order for the
property to be retained. Some liens can be avoided
(canceled and discharged) in bankruptcy, and others
can’t. For example, mortgages usually cannot be
avoided in bankruptcy if you want to keep the home
(though you do have the option to surrender the home
back to the lender and discharge the mortgage). So,
one cannot file bankruptcy and wipe out their mortgage
and still get to keep their home (though Chapter 13 can
help one get current on a mortgage again if one has
fallen behind on one or more mortgage payments).
There is an exception to this, wherein debtors in Chapter
13 may "strip" a junior mortgage or mortgages, which
means wipe them out, if they owe more on superior
mortgage(s) than the home is worth. This is normally
done by motion or adversary proceeding during the
Chapter 13 case. Be sure and ask your attorney for
details, especially if you owe more on your first
mortgage than your home is worth and you have a
second mortgage, or if you owe more on your first and
second mortgages combined than your home is worth
and you have a third mortgage, etc).
4. Will I have to go to court?
Yes. Each person who files bankruptcy must
attend one hearing called the “First Meeting of
Creditors.” Sometimes this hearing is called the “341
Hearing” since Section 341 of the Bankruptcy Code is the
section which requires that a hearing be held.
In southern Indiana, each person who files
bankruptcy must attend their First Meeting of Creditors
in one of four cities, depending on which county they live
in: Indianapolis, New Albany, Terre Haute, or Evansville.
Click here to see which Bankruptcy Court you will go to
based on the county in which you live.
The First Meeting of Creditors is usually not held in
a courtroom since it is not presided over by the
Bankruptcy Judge. Instead, the court appoints a
bankruptcy trustee to oversee the bankruptcy case, and
it is this trustee who presides over the hearing.
The typical First Meeting of Creditors lasts from
five to twenty minutes, during which time the trustee will
ask the debtor (the person who filed bankruptcy)
questions about his or her case. The debtor’s attorney is
also present to assist the debtor with technical
questions. Creditors may also appear at this hearing
if they like and ask the debtor questions, though they
usually do not attend.
Most of the time this is the only hearing a person
who files bankruptcy must attend, though occasionally
one may have to attend additional hearings to resolve
special matters (and you can discuss this possibility with
your attorney).
5. How does the process of filing bankruptcy work?
First, one consults with an attorney to discuss if
bankruptcy is the best option for him or her. After the
consultation, if the person decides to file bankruptcy,
then he or she provides the relevant information and
documents to his or her attorney to prepare the
bankruptcy petition, which is the document that the
attorney will file with the Bankruptcy Court to initiate the
bankruptcy case. The person filing bankruptcy will
carefully review the petition for completeness and
accuracy and sign it under oath before it is filed.
Also prior to filing the bankruptcy case, one must
obtain a certificate of credit counseling from an
approved credit counseling agency either on the
internet, by phone, or in person. The certificate is good
for 180 days. Later, after the case is filed but before the
case is over, one must also take a two hour debtor
education course either online, by phone, or in person.
Click here for a select list of counseling and debtor
education providers for Southern District of Indiana. If
you do not live in the Southern District of Indiana, click
here for a complete list of approved providers for the
whole country.
After the bankruptcy petition is filed, the court will
notify all of the creditors that the case has been filed so
that creditors may not continue to call, bill, or harass the
person who filed (and this is called the “automatic stay,”
which basically “stays” creditors from continuing to
collect from the debtor - see 11 U.S.C. § 362). Also,
creditors may not foreclose on a home or repossess a
car once they have notice of the bankruptcy filing unless
they first get permission from the court or unless the
debtor has filed a previous bankruptcy case or cases too
recently, in which case the bankruptcy protection may
only go into effect temporarily or not at all (ask your
attorney, especially if you have had one or more
bankruptcies pend at any point in the prior 12 months).
About a week after the case is filed, the court will
notify the person who filed bankruptcy, their attorney,
and all of the creditors of the date, time, and location of
the “First Meeting of Creditors,” which is the hearing that
the person who filed bankruptcy and his or her attorney
must attend. This hearing is usually about five weeks
after the date on which the bankruptcy petition was
filed.
Each debtor must also attend an debtor education
class on financial management (around 2 hours long)
either online, on the phone, or in person and file a
certificate indicating they completed the class before
their discharge will be issued by the court.
After the hearing, a Chapter 7 case is normally
closed 60 days later (at which time the court mails an
“Order of Discharge” to the person who filed
bankruptcy). In a chapter 13, after the hearing and after
any issues that arise are resolved, the court will issue an
“Order of Confirmation” in the mail to the person who
filed bankruptcy, approving the Chapter 13 Plan. The
Chapter 13 then lasts 36 to 60 months (as indicated in
the confirmed Chapter 13 Plan) and at the end of the
Chapter 13 Plan term and upon application from the
debtor, the court will mail an “Order of Discharge” to the
person who filed bankruptcy, ending the case.
6. What types of debt may be discharged in
bankruptcy?
Debts which bankruptcy will not usually discharge
include income taxes that are less than three years old,
income taxes that are more than three years old if the
returns were not filed accurately or on time (though this
is really complex, ask your attorney), trust fund taxes of
any age (such as withholding taxes, i.e. when an
employer failed to pay withholding taxes for employees),
student loans, child support, alimony, criminal fines,
damages resulting from willful or maliciously injury or
from accidents involving alcohol or drugs, and fraud.
These are called “nondischargeable” debts.
Bankruptcy will usually discharge all other types of
debts, including credit cards, personal loans, bank
overdraft fees, amounts due after the sale of a
repossessed vehicle or foreclosed-upon home, utility
bills, medical bills, back rent, etc.
It should be noted that even though there are
some types of debt that are nondischargeable, even
these nondischargeable debts can usually be dealt with
in a Chapter 13 case. Also, some debts which are
nondischargeable in a Chapter 7 case are dischargeable
in a Chapter 13, which is one of Chapter 13’s advantages
over Chapter 7.
Similarly, it should be noted that some types of
debts which are normally dischargeable may in some
cases be declared by the Bankruptcy Court to be
nondischargeable. For example, credit cards are
normally dischargeable, but if one uses a credit card too
recently before filing a bankruptcy or in too large of an
amount (or both), the Bankruptcy Court may decide that
the credit card was used after the person knew he or she
would be filing bankruptcy on the debt, and therefore
the Bankruptcy Court would not allow the person to
discharge the credit card.
7. How can bankruptcy hurt me?
You may be expecting the answer to be “It wrecks
your credit for 10 years.” But, that is usually not true.
While Chapter 7 is on one’s credit report for ten years,
and Chapter 13 is on one’s credit report for seven years
(though the Fair Credit Reporting Act seems to imply
both chapters should be on your credit report for 10
years - see Fair Credit Reporting Act § 605(a)(1) [15 U.S.C.
§ 1681c]), your credit score is often higher (sometimes
much higher) in as little as 12 months after the
bankruptcy is filed, than what it was before the
bankruptcy was filed. I often have clients whose credit
score is more than 100 points higher than their pre-
bankruptcy score within a year. However, the
appearance of bankruptcy on one’s credit report may
have a negative impact on one’s ability to get credit for a
time, and may influence the interest rate one has to pay
for credit that is received, but the frequently-improved
debt-to-income ratio and higher credit score after
bankruptcy usually overcomes the stigma.
One can normally acquire a car loan very shortly
after filing and a mortgage 24 months after filing
(assuming other credit factors are acceptable such as
employment, income, etc.).
Some books on credit repair can be found here.
8. How can bankruptcy help me?
Bankruptcy is not a failure - it is a fresh start.
In most cases, bankruptcy can: stop creditor
harassment , stop garnishments and wipe out judgment
liens on real estate. It can get rid of credit card debt,
loans, medical bills, old utility bills, amounts left due and
owing from repossessed cars and foreclosed homes,
judgments, small claims, and most other types of debt.
Chapter 13 may be used to stop foreclosures and
repossessions, catch up rent or utilities that are behind,
and allow a person to restructure most or all of his or
her debts into a reasonable and affordable repayment
plan (called a Chapter 13 Plan).
Also, as discussed above, bankruptcy usually
increases your credit score quickly (since it cancels the
negative information that is keeping your score low).
Bankruptcy can in many cases fix “under water” or
“upside down” loans, so for example if you owe more on
a car than it is worth, in bankruptcy you often only have
to pay the value of the car, not the high loan balance.
Bankruptcy can also help you adjust high interest rates
to much more reasonable interest rates.
Bankruptcy doesn’t usually discharge student
loans (though in some cases it can), but it can force the
student lenders to stop collecting for up to five years if
you file Chapter 13.
Bankruptcy can help you pay back debts you
want/need to keep, and often cancel interest and late
charges from accruing (even on tax liability).
An indirect benefit of bankruptcy, and probably
more important than any other benefit, is that
bankruptcy can relieve stress and give you a plan to deal
with debts so that you can sleep at night. Not to be
overly dramatic, but it can save money, marriages, and
lives. Life is too short to spend it in a constant state of
worrying about bills.
If you are like most people considering
bankruptcy, you want to pay your bills but you can’t keep
all your creditors happy (for many reasons, including
divorce, medical bills, job loss, bad credit making you pay
high interest on everything you buy, etc). If that is the
case, bankruptcy is a good option to consider: it can stop
the pressure and let you catch your breath, and then, if
you choose, you can still pay back some or all of your
creditors later, on your terms. The Bankruptcy Code
does not prohibit a person from voluntarily paying back
their bills after the bankruptcy is over if the person later
decides they can afford, and want, to do so.
9. What fees do I have to pay to file bankruptcy?
There are usually three fees one must pay to file a
bankruptcy case: attorneys fees, the filing fee charged by
the court, and credit counseling/debtor education
fees.
Attorneys fees vary depending on the complexity
of the particular case and the chapter filed. One’s
attorney should indicate the amount of the attorneys
fees before one hires the attorney to proceed with
his or her case.
The filing fee goes to the court to administer the
case and is a fixed amount set by the government.
Currently, the filing fee for a Chapter 7 case is $335.00,
and the filing fee for a Chapter 13 case is $310.00.
Credit counseling fees are the fees you pay to a
third party credit counseling service to get your credit
counseling certificate (before you file your bankruptcy
case) and to get your debtor education certificate (after
you file your case but before your case can be
successfully closed). These fees usually total around
$20.00 to $50.00 depending on which provider you use.
10. If I am married, does my spouse have to file too?
No. A married person may either file jointly with
his or her spouse or individually. If the spouse does not
file bankruptcy also, the spouse’s credit is generally
unaffected. People who are not married may not file a
joint bankruptcy case together.
One should note that it is problematic for a person
who is filing an individual bankruptcy to transfer assets
to his or her spouse or to anyone else shortly before
filing bankruptcy. Talk to an attorney before any such
transfers are made.
11. Can I run up my credit cards and then file
bankruptcy?
No. The trustee assigned to a case can object to
the bankruptcy if he or she feels that the person who
filed the bankruptcy made charges on a credit card or
bought anything on credit when that person knew he or
she would eventually file bankruptcy on the debt. Also,
creditors may object if they see a spending "spike" prior
to filing bankruptcy.
If the trustee or a creditor prevails on their
objection, the Bankruptcy Court can declare the credit
card to be nondischargeable, dismiss the case, or even
allow criminal proceedings to be instituted against the
debtor.
12. What can I do to avoid ever having to file
bankruptcy?
No one without a crystal ball can definitively
advise anyone on how to prepare financially for life’s
misadventures. Sometimes circumstances arise that
force even the most financially conscientious persons to
file bankruptcy. However, we can relate what our
experience tells us are the most common reasons
bankruptcies are filed so that you may try and avoid
these pitfalls.
First, unexpected medical bills for which one has
no insurance or inadequate insurance causes a
considerable number of bankruptcies. You should
always try to maintain the best health insurance
coverage you can in order to avoid accumulating a
massive amount of medical debt. It may well be the case
that it is more to your advantage to take a lower-paying
job that offers good health insurance rather than take a
higher-paying job that does not offer insurance unless
you will use the extra money from the better paying job
to fund your own health insurance. That being said,
even with health insurance, some people still end up in
bankruptcy because even paying only a deductible plus
medication can still be financially devastating. But, the
best you can do is try to get as much coverage as you
can. Besides, not having health insurance may cause to
you be subject to a fine pursuant to the Affordable Care
Act.
This is a little off-topic, but in the event you do get
fined for not having health insurance - and do NOT take
this to mean I am suggesting it is okay to not have health
insurance, because it is very important to have - but if
you do get fined, keep in mind there a several regular
and hardship exemptions which may get you out of the
fine, such as having filed bankruptcy, dealing with
eviction or foreclosure, getting a shut-off notice on a
utility bill, having medical bills you couldn’t afford, death
of a family member, natural disaster, etc.
Read more about health insurance hardship
exemptions, here.
Read more about health insurance regular
exemptions, here.
Another cause of many bankruptcies is having no
car insurance or inadequate car insurance and then
getting into an accident. It only takes one time to drop
a cheeseburger in your lap and fly through the
neighbor’s gazebo at sixty miler per hour in an
Oldsmobile to realize that car insurance pays for itself.
Besides, it’s illegal to drive without it.
Job loss is a another major cause of bankruptcy.
With so many employers pulling up stakes and moving
out of town, or just folding altogether, this is a very
common cause of bankruptcy. Even companies just
scaling back hours or cutting overtime can wreak havoc
on your financial picture when you are depending on
those extra hours. This is a really troubling cause of
bankruptcy because there is no good way to prepare for
it. One could say to avoid working at companies likely to
move out of the country, but who's going to leave their
good-paying job (however tenuous) to go make half as
much for the sake of job security? However, no matter
how shaky the job, relying on overtime is shakier still. If
you're only able to pay your bills each month because of
the overtime you work, or taking extra shifts, you're
living too close to the edge and you should scale back
your spending. At least if you lose a good-paying job,
you may be able to replace it with 60 hours at a lower
payscale, but you have no chance of staying afloat if you
were living on time-and-a-half on top of your high wage.
But, if you’re like most people, I know I’m preaching to
the choir: you try to make as much as you can and try to
spend as little as you can, but if the job ends, it’s game
over financially. The financial planning experts tell us to
have 3 months of expenses in savings at all times in case
of job loss. I’m sure that’s good advice in a perfect world,
but for some reason I picture them writing that advice
from the comfort of their Bugatti, because I don’t know
many people that can afford to do that. But, as my
grandpa used to say, it’s not what you make, but what
you save. So, to whatever extent you can try to put a
little bit back in savings each paycheck and forget about
it. It might grow faster than you think.
Credit card usage also forces many people into
bankruptcy. The interest and fees typically compound
with such ferocity that one can dig a very deep financial
hole without realizing it. Paying only the minimum
payment each month is the same as flushing your
money since many credit cards will take decades to pay
off if you only pay the minimum payment. By way of
example, paying minimum payments on a $10,000.00
credit card balance with a 15% interest rate would take
about 28 years to pay off. You could nearly buy a house
in that amount of time, but instead your money will still
be going toward a one-year-old’s birthday present you
bought for a kid who’s now pushing 30. Many people are
of the opinion that you need a credit card to get by in the
modern world. “I need a credit card for emergencies”
and “I can’t even rent a car or buy anything on the
internet without a credit card” seem to be common
arguments supporting this position. And, it's true that
credit cards have opened up a lot of possibilities and
they're very convenient. However, one can use a debit
card exactly like a credit card, but the money is drawn
from your own bank account rather than a credit card
company so there is no risk of being stung for
interest and fees. A small savings account earmarked
“for emergencies only” is far more beneficial to deal with
emergency expenditures than a credit card since you
earn interest on the money while it sits in the bank
rather than paying interest on it after you spend it.
13. What alternatives are there to filing bankruptcy?
Some people have success avoiding bankruptcy by
acquiring a home equity loan. If you own a home and
have sufficient equity in that home, you may be able to
get a home equity loan (which is a mortgage) and use
the money to pay off other debts. This process
is called “debt consolidation,” and there are some
advantages and disadvantages to consolidating multiple
debts into a single home equity loan.
Regarding the advantages, first, a home equity
loan will usually have a better interest rate than the rate
on the other debts you are seeking to consolidate
(especially if the debts you want to consolidate are credit
cards or personal loans).
Second, home equity loans may allow a
repayment term that is several months or years longer
than the repayment terms of the debts being
consolidated, so the monthly payment will be lower and
more manageable. While it costs you more interest over
a longer repayment term, the improved interest rate
may offset this.
Third, one may be able to settle the consolidated
debts for a lower amount than the total amount owed
on the debts. For example, if you owe $21,000.00
in credit cards and you can borrow $13,000.00 as a
second mortgage on your home, you may be able to
negotiate with the credit card companies and get them
to accept the $13,000.00 as full and final settlement of
the cards, and thereby save $8,000.00. It should be
noted that there are some pitfalls with debt settlement,
such as the IRS considering the forgiven debt as income.
It is possible that, in the example above, the IRS will want
you to pay taxes on the forgiven $8,000.00 (unless you
qualify for an IRS exception or exclusion from the
forgiven debt being deemed income), so it is always a
good idea to save some money back for taxes when
settling debts. Another pitfall is that creditors with
whom you are trying to settle a debt may tell you they'll
accept a certain amount as full and final settlement on
the phone, but if you don't get it in writing prior to
sending the settlement funds, it is possible that they'll
keep billing you for the balance. When you call and tell
them you settled the debt on such-and-such date with
James, they might say “we have no record of that, and he
doesn’t work here any more.” Get it in writing before
paying, even if it is just a fax or email. Another pitfall is
that when the creditor does accept a settlement amount,
they will want the settlement amount in a lump sum in a
very short amount of time, so you frequently need to
have all of the funds on hand and ready to go prior to
settlement. Another pitfall is that if you miss the
deadline to get the settlement funds to the creditor, they
will say the settlement was canceled because you missed
the deadline and they will keep billing you for the
balance. So, it is always best to send settlement
payments certified with return receipt requested or pay
on the phone and get a confirmation number so you can
prove that the creditor received the funds timely. Go
here for books on debt settlement.
Finally, home equity loans can be advantageous
for tax purposes. It may be the case that interest paid
on home equity loans is tax deductible (see a tax
professional), whereas the interest paid on most debts
that are consolidated is not usually tax deductible. Also,
having a mortgage may qualify you for a mortgage
exemption on your property taxes (ask your county
official).
However, one should be cautioned that while
home equity loans may be helpful in avoiding
bankruptcy, you should ensure that the home equity
loan will put you in a good financial condition with an
easily manageable payment prior to entering into the
loan, and afterwards you should avoid credit cards like
the plague.
The reason for this is that it is especially
unfortunate if you consolidate your debts with a home
equity loan but then ultimately wind up having to file
bankruptcy anyway. Home equity loans may not usually
be discharged in bankruptcy unless the home is
surrendered and lost, whereas many types of debts
people consolidate with home equity loans are usually
dischargeable in bankruptcy. So, home equity loans turn
what is typically unsecured, dischargeable debt into
secured, nondischargeable debt. In other words, by
doing a home equity loan, you may be turning debts you
could have gotten rid of in bankruptcy into debts you
CANNOT get rid of in bankruptcy, so caution is advised!
Similar to home equity loans are reverse
mortgages. Persons who are 62 years old or older may
qualify for a reverse mortgage, which every good
bankruptcy attorney should have in the back of their
mind as a potential alternative for such clients. A
reverse mortgage is a U.S. Dept. of HUD-overseen
program, and may help a client pay off debt, get rid of
their obligation to make a mortgage payment entirely,
and allow them to keep their home. More info on
reverse mortgages can be found here.
If you do not own a home, or do not have enough
equity in your home to qualify for a home equity loan, or
just don’t want to take that step, then you may be able to
avoid bankruptcy by contacting a credit counseling
service. Credit counseling services work with most of
your unsecured creditors (i.e. creditors who do not have
any collateral to repossess, such as credit cards, medical
bills, etc.) but they usually will not help with secured
creditors like car lenders, mortgage lenders, etc. The
credit counseling service will contact your unsecured
creditors and try to get those creditors to reduce the
balances owed, the interest rates, and/or the monthly
payment amounts. Then you simply pay a single
monthly payment to the credit counseling service, who
then disburses the money to the creditors. This monthly
payment continues until the creditors are all paid off.
This not a loan; the credit counseling service doesn’t pay
off your debts and then you pay the credit counseling
service back; rather, your money goes to the credit
counseling service, who usually then deducts some
nominal fee, then they disburse your money out to the
creditors.
Credit counseling services should be selected
carefully since some credit counseling services are more
reputable than others. A credit counseling service with
whom past clients have had success in avoiding
bankruptcy is Apprisen Credit Counseling, which may be
reached at 1-800-355-2227.
Finally, some persons may be simply "judgment-
proof" and not need to file bankruptcy simply because
they have no garnishable wages nor un-exempt property
that can be seized by creditors. However, bankruptcy is
still often preferable to avoid the creditor harassment
and court appearance obligations that electing not to file
bankruptcy can cause. Talk to your attorney about this.
14. Will I get fired for filing bankruptcy?
No. The Bankruptcy Code has a provision in 11
U.S.C. § 525 which prohibits employers from
discriminating against an employee solely based on the
fact that the employee filed bankruptcy. In many cases,
an employer doesn't even know the employee filed
bankruptcy, though in Chapter 13 cases if you set up
Chapter 13 Plan payments to come out of wages, your
employer will know about the wage deduction.
15. Will my creditors stop harassing me if I file
bankruptcy?
Yes, in most cases. 11 U.S.C. § 362 requires
creditors to immediately stop harassing the debtor upon
filing of a bankruptcy petition. This same code section
also generally stops garnishments, repossessions, writs
of attachment, sheriff sales of homes, foreclosures,
lawsuits, and the like. It should be noted that there are
some instances in which bankruptcy will only
temporarily stop collection efforts, or not stop them at
all, if previous bankruptcy(ies) pended too recently,
unless and until the debtor timely requests the stay be
extended or imposed by the Bankruptcy Coourt and the
request is approved by the Court (see 11 U.S. Code §
362(c)(3) and (4)).
16. Do I have to use a lawyer to file bankruptcy?
No. However, a bankruptcy filing can be
complicated and it is advisable to seek professional help.
And no - I'm not just saying that because I am an
attorney. I'm saying that because if you don't plan or
claim your exemptions properly, or you make transfers,
payments or gifts in the months or years preceding your
case that can be reversed by the bankruptcy trustee, or if
you don't realize some piece of information needs to be
disclosed that is not disclosed, or if a motion needs to be
filed that isn't filed, etc, then a lot of bad things can
happen. And, even if you hire an attorney after-the-fact
to clean up a botched bankruptcy filing, the attorney
may not be able to reverse all of those mistakes AND
you may end up spending a lot more in attorneys fees
than you would have if you hired an attorney in the first
place, all for a much less desirable result.
I'm not looking to save a buck by doing my own
gall bladder surgery, and most people should not be
trying to stumble through a bankruptcy on their own.
17. How often can you file bankruptcy?
A Chapter 7 cannot be filed within 8 years of the
filing date of a prior Chapter 7 or Chapter 11 bankruptcy
that received discharge (see 11 U.S.C. § 727(a)(8)).
A Chapter 7 cannot be filed within 6 years of the
filing date of a prior Chapter 12 or Chapter 13
bankruptcy that received discharge (see 11 U.S.C. §
727(a)(9)) unless certain criteria regarding how much
money was paid to unsecured creditors in the prior
Chapter 12 or 13, and under what circumstances, are
met.
A Chapter 13 may be filed anytime after a prior
case, but if it is filed within one year of the pendency of a
prior case, the stay only protects you for 30 days unless
you get the Court to extend your stay. If two cases have
pended within the year before a Chapter 13 is filed, then
no stay goes into effect unless you can get the Court to
grant a stay (see 11 U.S.C. § 362(c)(3) and (4)).
Also, if a Chapter 13 case is filed within 4 years of
the filing date of a prior Chapter 7, 11, or 12 case that
received discharge, or within 2 years of the filing date of
a prior Chapter 13 case that received discharge, then the
current Chapter 13 can have a stay and reorganize debts
but cannot be granted a discharge (see 11 U.S.C. §
1328(f)(1) and (2)).
Obviously, these rules are complicated and should
be discussed with an attorney.
18. Once I realize I may need to file bankruptcy, what
should I do?
First of all, STOP using credit cards. Stop charging
and stop making any cash advances. Also, stop all
services that continue to bill to credit cards, such as
internet providers. Don't get any more personal loans or
payday loans. The Bankruptcy Code has provisions
against acquiring any of these types of debt too recently
prior to filing a bankruptcy petition.
Second, don't transfer any property to anyone
else, and don't acquire any new property in your name.
Third, don't destroy any business or financial
documents. You may not be entitled to bankruptcy relief
if you cannot produce documents the court requires.
Fourth, don’t make any major financial changes,
like cashing out your retirement or moving all your
money into your spouse’s bank account.
Finally, contact an attorney and set up a
consultation as soon as possible. It may be advisable
that you stop paying certain bills or take other actions,
so you want to get advice as soon as possible.
19. Is the bankruptcy filing printed in the
newspaper?
Probably not. Bankruptcy filings are not required
to be printed in the newspaper (or anywhere else). But,
they are public record, so it is technically not illegal for a
newspaper to print them. However, I suspect modern
privacy concerns have made many newspapers steer
away from printing such personal material when there is
no legal requirement to do so, and it is an antiquated
thing to do. It has been years since I saw a newspaper
print bankruptcy information.
20. How long do I have to live in a State before I can
file bankruptcy there?
91 days, basically. 28 U.S.C. § 1408 requires that
one live in a district (i.e. most States are broken into
multiple districts for federal court purposes) for the
greater part of the preceding 180 days in order to file a
bankruptcy in that district, and of course the greater part
of 180 days is 91 days or more. There are some minutia
regarding this code section that should be discussed
with an attorney.
Also, you have to live in a State for 2 years to use
that State's exemptions (thought there are some
exceptions to this as well - see your attorney).
In other words, you have to live in a district for 91
days to file bankruptcy there, but if you have not been in
that State for at least 2 years, you may have to use the
exemptions from your prior State of residence (or
federal exemptions) to determine how much property
you can exempt/protect.
21. I've heard of a "Chapter 20," what is that?
There is no Chapter 20 in the Bankruptcy Code,
but as an unknown individual at the Doney & Associates
law firm surmised, while "…there is no real Chapter 20, …
we bankruptcy attorneys amuse ourselves by proving
that we can add." A “Chapter 20” is when you file a
Chapter 13 right after a Chapter 7. One reason some
people do this is because you cannot stop a home
foreclosure with a Chapter 7, but you cannot file a
Chapter 13 if your unsecured debt exceeds certain dollar
amount. So, if someone's home is being foreclosed but
their unsecured debt amount exceeds the limit for a
Chapter 13, those persons may file a Chapter 7 and wipe
out the unsecured debt, then file a Chapter 13 and stop
the home foreclosure. There are other applications of a
Chapter 20 as well. Court's dispositions toward Chapter
20's vary from region to region.
22. Do I have to have a certain amount of debt to file
bankruptcy?
No. You may file Chapter 7 regardless of how
much or little money you owe, and you may file Chapter
13 so long as your debt does not exceed certain dollar
amounts pursuant to 11 U.S.C. § 109(e) with those debt
cap amounts periodically adjusted for inflation.
However, if you don't owe very much, your situation may
not warrant filing bankruptcy. Ask your attorney about
this.
23. Does my filing bankruptcy protect a co-signer?
It depends. The debtor in bankruptcy can protect
a co-signer by continuing to pay the debt after the
bankruptcy is filed (either directly to the creditor after a
Chapter 7 or directly or through the Plan in a Chapter 13)
or have the co-signer file bankruptcy also.
24. What is the typical debtor profile?
People from all walks of life and ages file
bankruptcy for various reasons. According to The Fragile
Middle Class: Americans in Debt, Elizabeth Warren,
Harvard Law School, the average age of persons who file
bankruptcy is 38; 44% of filers are couples; 30% are
women filing alone; 26% are men filing alone; Persons
who file bankruptcy are slightly better educated than the
general population; Two out of three people who file
have lost a job; Half the people who file have suffered
serious health problems; Over 91% of people who file
have suffered a job loss, medical event, or divorce. The
states with the highest bankruptcy rates are Nevada,
Georgia, Utah, Tennessee and California.
25. Is there anything I can do to get collection
agencies to stop calling me besides filing
bankruptcy?
Yes. Collection agencies (which are companies
who collect debts owed to another person or company)
must follow certain rules in collecting debts pursuant to
the Fair Debt Collection Practices Act, which is federal
law written in Title 15 of the United States Code. One
may send to collection agencies a letter similar to the
sample letter listed below in order to stop harassing
phone calls. However, sending this letter does not mean
that the debt is no longer owed, or that the creditor
cannot sue you to collect the debt, but merely requires
the collection agency to follow certain rules in
attempting to collect the debt. Also, it should be noted
that this letter is only applicable to collection agencies,
which are companies collecting debts owed to another,
and not to the original creditor if that creditor has
undertaken their own collection activities. It also does
not apply to collection agencies which are collecting
commercial (i.e. business-related) debt rather than
consumer debt.
The following sample letter is designed to be
mailed to a collection agency with the sender retaining a
copy:
__________________________________________________
(Collection Agencies’ name) (Date)
(Collection Agencies’ address)
Via Certified Mail, Return Receipt Requested, Article No.
(certified article number)
Re: (Your name)
(Your account number)
Dear Collection Agency:
Please be advised that while I am not at this time
disputing the validity of the debt on which you are
collecting, though I expressly reserve that right for the
future if it becomes applicable, I am hereby exercising
my right under federal law to require you to collect on
said debt in a legal fashion and in compliance with the
Fair Debt Collection Practices Act.
Pursuant to 15 U.S.C. 1692c (Fair Debt Collection
Practices Act sec. 805(c )) I am hereby informing you that
I wish you, your company, and any and all agents thereof
to cease further communication with me other than as
permitted by the above-cited federal statute. This
means that pursuant to 15 U.S.C. 1692c (Fair Debt
Collection Practices Act sec. 805(a)(2)), the only further
communications you are allowed by law to make to me
is limited to (1) advising me that your further collection
efforts are being terminated, (2) that you may invoke
special remedies which are ordinarily invoked by your
company, and (3) to notify me that you intend to invoke
a special remedy.
According to the same statute, you also may not
contact my spouse, parent, guardian, executor,
administrator, employer, or any other person in
connection with the debt.
Also, this letter serves as your notice that it is
inconvenient for me, for the purposes of 15 U.S.C. 1692c
(Fair Debt Collection Practices Act sec. 805(a)(1)), for you
to contact me by telephone or in person at any time, and
that all further communications from you to me must be
made in writing.
If you contact my spouse, parent, guardian,
executor, administrator, employer, or any other person
in connection with my debt, either by mail, in person, by
telephone, or by any other means, or if you contact me
by any means other than by mail, or if you mail me
anything other than that which is permitted by law as
described above, I may have the right to pursue
sanctions against your company pursuant to 15 U.S.C.
1692k (Fair Debt Collection Practices Act sec. 813) or any
other applicable state or federal law.
Sincerely,
(Your signature)
(Your name printed)
____________________________________________
Bankruptcy Basics
Bankruptcy is the legal process in
which a person or business that has become
unable to pay its bills may have those debts
canceled (called “discharged”) by a federal
court, thereby relieving the individual or
business from having to pay those debts.
The purpose of bankruptcy is
Officia sunt commodo tempor occaecat
Aute est anim consectetur ad sed commodo eiusmod
laboris et id in mollit lorem. Laboris cillum, qui esse est
velit ut eu commodo officia excepteur. Tempor magna
pariatur cillum exercitation nostrud occaecat nisi dolor
eu voluptate dolor sint fugiat adipisicing sint.
Chapter 7 vs. Chapter 13
Prior to getting into a discussion on
whether one might select Chapter 7 or
Chapter 13, following is a brief description of
each chapter:
Chapter 7
Chapter 7 is commonly known as
“liquidation” or “total bankruptcy.” A Chapter
7 may be filed by most types of entities,
including an individual, a married couple, an